American cities go bust!

Overdrawn US cities could face financial collapse in 2011, defaulting on hundreds of billions of dollars of borrowings and derailing the US economic recovery.

But as cities are choosing between devastation and default, analysts say really it’s about the fall of American cities and the coming collapse of the Union.

It’s the reality America cannot escape, news of debt cash-strapped cities and states all over the country. All together it could amount to two trillion dollars and a bill many of them may not be able to pay.

“The problem of the state and local debt is more serious than the real estate bubble,” said Michael Hudson, Wall Street analyst and professor of economics at the University of Missouri.

Serious because with millions of Americans still unemployed and losing their homes, there isn't enough taxpayer money to pay creditors. Local governments which aren't allowed to operate in the red must come up with the cash. This means some may be choosing between default and devastation.

“I think most cities will be able to avoid default by cutting services,” said Joe Weisenthal, deputy editor at The Business Insider.

Cities and states coast-to-coast seem to be trying the latter route and the toll it's taking on the streets of America is undeniable.

Camden, New Jersey is the second most dangerous city in the country. You didn't see many cops on the streets to begin with and now you may rarely see any. The city's had to lay off nearly half of their police force.

In Detroit a city where people have been too broke to bury their dead, the city is too broke to repair dying infrastructure, to fix roads or lights.

In the desert state of Arizona, cuts have been a matter of life and death. Organ transplant patients have died since the state cut funding for the victims.

In New York City huge piles of uncollected garbage are the alleged result of budget cuts.

“There isn’t enough wasteful spending to cut you do have to cut services people depend on,” Weisenthal pointed out.

Analysts say the slashing will amount to an increase in unemployment and a lowering of wages dragging more Americans down and the economy with it. Meanwhile, they say the prospect of bankruptcies threaten the pensions of public workers and may cause a run on municipal bonds.

Either scenario seems to be causing a widespread decline in the American city, once relegated to ancient history.

"It's a feedback toward economic shrinking, downsizing, and de-urbanization,” Hudson predicted. “Exactly the same thing happened in the Roman Empire when in the end Rome was left almost a deserted city and all of the production shifted back onto the land. That's what you’re faced with here although the land on this case will be abroad rather than in the United States."

Investment that flees to other countries threatening to take with it the American dream.

Richard Wolff, a professor of economics emeritus at the University of Massachusetts explained people without jobs, without secure income, impact city taxation because people spend much less bringing in less revenue to cities.

Cities are proposing deep cuts to public services and laying off staff, both of which could deepen the crisis, he argued.

“It will mean fewer teachers, teachers with less material to help your children learn. Fewer fire machines to help deal with fires. Fewer police personnel, fewer health councilors, fewer highway workers. It’s going to translate into a diminished quality of life,” Wolff explained. “We need more services and better services from the government, not fewer. It’s going to impact everyone.”

The government and a number of corporations are suggesting a new type of bond that would allow for more and increased government borrowing.

Wolff said such a program might look good in the short-term, but in the long run it only furthers the problem. The government will only delay making it’s cuts to services and programs, and use the bonds as an excuse in the future to do so as debt builds

In addition, a number of cities and states are considering bankruptcy as an option.

“It does two things that are immediately extremely dangerous,” remarked Wolff. “You are saying to all the people to whom you have obligations that you can’t meet them. Then immediately begins an intense struggle utilizing lots of lawyers as all of the people who have a claim on the bankrupt city of state try and make sure they get their money back.”

This will inspire employees, pensioners, bond holders and others to fight furiously for their claim, adding a new problem to the already compounded financial issues.